The y-o-y numbers, except for mining, look pretty decent, but the monthly log changes shows contraction across the board. A look at the levels shows mining output to be the worst hit (index numbers; 2000=100):

Electricity generation, as should be expected, is on a consistent uptrend, but manufacturing growth (apart from the spike in February coinciding with CNY), is pretty flat this year, and only marginally higher than 2011.

I don’t think the drop in mining is permanent, and we should see a bounce back similar to the previous time this happened (May 2011). Having said that, mining’s weight in the IPI is just 23.4% and a return to June’s level of output for instance would only boost the overall index by a couple of index points; not enough to actually show growth in the overall index.

The forecast based in IPI alone suggests growth for 3Q will be a hair under 3.6% y-o-y, with the 1 standard deviation range forecast at between 4.7%-2.5%. The quarterly seasonally adjusted forecast on the other hand is showing an outright contraction, of around 3.7% annualised.

But…I’ve got somewhat better forecast models now, and they’re most of them suggesting substantially stronger growth than this – for those models, there’s a very low probability (2.5%) that the GDP growth number for 3Q will be below 4.2%.

So I think that we should see growth closer to the upper end of the IPI forecast, somewhere between 4.2% to 5.2%.

Of course, as data comes in this view will change, as the IPI forecast is extrapolating off just one month’s data. Once the IPI for August is in, we’ll have a much more solid feel for growth in the second half of this year.

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About Me

An applied and practicing economist in the Malaysian financial sector.

The purpose of this blog was first to have a way to put down and present my ideas, work in progress, and thoughts on the Malaysian economy. The second reason was to hopefully attract critiques and feedback, that would help me improve on my own understanding of the way the world works, or at least, this little corner of it.